Meta Stock Falls Despite Beating Earnings Expectations

Shares of Meta Platforms, the parent company of Facebook, Instagram, WhatsApp, and Threads, dropped by more than 3% following its third-quarter earnings report on Wednesday. This decline came despite Meta surpassing Wall Street’s expectations for earnings per share (EPS) and revenue, but concerns over certain metrics and high expenditures seemed to create uncertainty among investors.

In its latest report, Meta posted earnings of $6.03 per share, outperforming analyst estimates of $5.22. Revenue reached $40.5 billion, also beating the forecast of $40.2 billion. While these results impressed, they did not fully ease investor caution, particularly as some had anticipated even stronger performance given the stock’s remarkable growth this year. Meta’s stock has surged about 70% since the start of the year, surpassing the gains of other tech giants like Google and Microsoft, which saw increases of around 30% and 18%, respectively. The share price even reached an all-time high of $602.95 earlier in October, reflecting investor confidence. However, a combination of missed expectations in certain metrics and significant spending raised concerns about whether Meta can sustain its rapid growth.

Daily active users (DAUs) across Meta’s platforms increased by 5% year-over-year to 3.29 billion but fell slightly short of analysts’ expectations of 3.31 billion. User engagement is a critical metric for Meta, as advertising revenue, its primary income source, closely correlates with DAUs. The missed target raised questions about the potential growth ceiling or shifting engagement trends, especially in markets where Meta has already achieved high saturation.

The report also showed a steep increase in capital expenditures, which rose to $9.2 billion. Much of this spending has gone toward investments in artificial intelligence (AI) and Meta’s Reality Labs, the division responsible for developing virtual and augmented reality technologies. Reality Labs, which oversees products such as the Meta Quest VR headset and the upcoming Orion augmented reality glasses, posted an operating loss of $4.4 billion in the third quarter. CFO Susan Li warned that Reality Labs is likely to continue operating at a loss for the foreseeable future, contributing to investor anxiety over the substantial costs Meta incurs in pursuing its VR and AR ambitions.

CEO Mark Zuckerberg has repeatedly expressed a strong commitment to AI, which is central to Meta’s long-term strategy. In the latest earnings call, he noted that the company’s flagship AI model, Llama, is “well into development” and that he prefers building AI infrastructure ahead of demand. The Meta AI chatbot, a key part of these initiatives, now has over 500 million monthly active users, showcasing Meta’s progress in AI. The company has also launched a pair of smart glasses in collaboration with Ray-Ban, which has been well-received in markets across Europe, the Middle East, and Africa. These advancements underscore Meta’s commitment to enhancing its social media offerings through AI and could improve user engagement.

Meta’s social media ecosystem has also expanded through Threads, its competitor to Elon Musk’s X (formerly known as Twitter). Just over a year since its launch, Threads has attracted nearly 275 million users, making it a strong contender in the social media space. The app’s growth represents a successful entry into a competitive market and demonstrates Meta’s adaptability in capturing new user bases.

The company’s market value now stands at $1.5 trillion, solidifying its position as one of the world’s few trillion-dollar firms. Meta’s continued success has significantly boosted Zuckerberg’s wealth, with his net worth now estimated at $207.5 billion, a considerable jump from $64.4 billion the previous year. As most of his fortune is tied to Meta’s performance, Zuckerberg’s financial standing remains closely aligned with the company’s trajectory.

Meta is also reportedly developing its own AI-powered search engine, intended to reduce its reliance on external search providers like Google and Microsoft. This search engine could allow Meta to further integrate its AI technologies across its platforms, responding directly to user queries within its ecosystem. Such an endeavor could make Meta’s services more self-contained and enhance its ability to deliver personalized content.

However, Meta has recently faced internal controversies, including an incident now referred to as “Grubgate.” About two dozen employees were terminated after allegedly abusing a $25 Grubhub meal credit, using it to purchase non-food items like wine glasses and laundry detergent. While this issue is unlikely to impact the company’s financial performance, it highlights some of the challenges Meta faces in managing a large, dispersed workforce and perks associated with remote work.

Despite the recent dip in stock, analysts remain cautiously optimistic about Meta’s future. While high capital expenses and sustained losses in Reality Labs raise questions, the company’s long-term focus on AI, VR, and AR could yield significant returns. As Meta pushes to remain a leader in the tech industry, its success will depend on balancing investment costs with advancements that engage users and generate revenue. How well Meta navigates these challenges may determine its continued appeal to investors.